Asked & Answered: Dividend Ex-Date

Lauren, from Lambertville, NJ:

Why does my portfolio drop in value about a week before large dividends are paid?

Friedenthal Financial:

When a stock pays a dividend, there are three important dates to know.  The “declaration date” is simply the date they disclose the next dividend to be paid to shareholders.  The “ex-date” is the first date in which a purchaser of shares does NOT get the dividend that was declared.  The owner of record at the close of business on the day BEFORE the “ex-date” is the one entitled to the dividend.  The “payable date” is the date that the dividend (cash or shares) is deposited in to the investor’s account.

As you might expect, all else equal, the value of a stock DROPS by the amount of the dividend between the close on the day before the “ex-date” and the open on the day it goes “ex-date”.  The dividend doesn’t actually make its way in to your account for about a week.  If you have a portfolio that has dividends spread out over a large number of days, this may be small enough to go un-noticed.  If your portfolio has concentrations of investments that go “ex-date” on the same day, it may be quite noticeable!

Exchange Traded Funds (ETFs) pay dividends based on the dividends or interest distributed by the underlying companies that are owned in the ETF.  To avoid the mess associated with paying dividends constantly throughout the calendar, ETFs generally aggregate dividends and interest and distribute them as dividends either once each month or quarterly.  Some even do it semi-annually or annually.  This can make the dividends quite significant!

Many pricing services (like Yahoo) adjust the daily change they display on the ex-date for this very reason.  So, if you notice that an investment in your portfolio dropped by more than daily change displayed in your favorite pricing service, check to see if it is the ex-date for dividends!

We hope that helps and provides fodder for discussion.  Please let us know if we can be of further service!

The Friedenthal Financial Team

856-210-6494 (Office)

856-210-1565 (Facsimile)

info@friedenthalfinancial.com

www.friedenthalfinancial.com

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This blog is only intended to provide answers to questions of general interest we receive on the topics of investments, finance, capital markets, and economics and to serve as a historical repository for our e-mailed Asked & Answered column.  We are not rendering or offering to render personalized investment advice or financial planning advice through this blog or any of its attached links.  Friedenthal Financial will render investment advice to potential clients only after:  (i) we have delivered a disclosure statement to the potential client as required under applicable securities laws, and (ii) the potential client has executed and delivered Friedenthal Financial’s investment advisory contract to us.  We will provide investment advisory services to clients only in states in which Friedenthal Financial is registered as an investment adviser or is exempt from registration.

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